The static budget for the College Book Division of Chasse and Joos Publishers estimated sales revenue of $10,000,000 on sales of 165,000 units. The variable production costs (cost of goods sold) were estimated at $4,125,000, or $25 per unit sold. Actual results for the company exceeded expectations, with revenue of over $11,000,000 on sales of 180,000 units. However, the production manager was disappointed to see that the actual variable production costs of $4,400,000 exceeded the costs in the static budget by $275,000. The production manager did not understand why his costs were so much higher than the budgeted amount. If anything, he thought that his division had been very efficient and that costs should have been lower than reflected in the budget.

Explain why the production manager’s actual costs exceeded the amount estimated in the static budget. Should the production division be disappointed with the results?

  • CreatedMarch 11, 2015
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